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How Financial Literacy Shapes the Demand for Financial Advice at Older Ages
Hugh H Kim1, Raimond Maurer2, Olivia S Mitchell3
1The Darla Moore School of Business, University of South Carolina. 1014 Greene St., Columbia, SC 29208, USA.
Journal of the Economics of Ageing
|September 27, 2021
Summary
Financial literacy enhances the quality, not quantity, of financial advice sought by older Americans. Increased financial knowledge leads individuals to seek professional financial help, especially those with greater wealth and complex finances.
Area of Science:
- Behavioral Economics
- Gerontology
- Financial Planning
Background:
- Understanding the determinants of demand for financial advice is crucial for effective financial planning and consumer protection.
- Financial literacy is posited to influence financial decision-making, yet its specific impact on seeking professional advice remains under-explored, particularly among older populations.
Purpose of the Study:
- To investigate the relationship between financial literacy and the demand for financial advice among older Americans.
- To determine whether financial literacy affects the quantity or quality of financial advice sought.
Main Methods:
- Utilized an experimental module within the Health and Retirement Study (HRS) to assess the impact of financial literacy.
- Analyzed how varying levels of financial literacy influence the decision to seek financial advice and the type of advisor chosen.
Main Results:
- Financial literacy significantly improves the quality of financial advice sought, evidenced by a greater tendency to consult professionals.
- Financial literacy does not increase the quantity of financial advice sought.
- The positive effect of financial literacy on seeking professional advice is more pronounced in older individuals, the wealthy, and those with complex financial situations.
Conclusions:
- Financial literacy and financial advisory services are complementary, not substitutes.
- Interventions aimed at improving financial literacy can enhance the utilization of professional financial advice among vulnerable populations.
- Policy and practice should focus on leveraging financial literacy to improve advice quality rather than solely increasing advice seeking.
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